If you're getting ready to launch a new business, chances are you know your product or service and your market like the back of your hand. But the mechanics of forming a business entity-knowing the terminology-may be more difficult to understand.
To help you sort through the terminology, Harvard Business Services, Inc. has included a comprehensive glossary to help guide you. To use the glossary, match the first letter of the term you want to look up with the alphabet list below, and click on that letter.
Of course, our team of business formation professionals is standing by to help you make informed decisions if you need more information
The classic, general corporation; referred to as a C Corporation due to it being taxed pursuant to Subchapter C of the IRS Code.
Capital Gains or Losses
Gains or losses that result when a capital asset, such as stock, is sold for more or less than its original purchase price.
Same as “Authorized Stock.” Sometimes referred to as Capital Stock because the value or capital of the corporation is normally based on the amount of authorized stock.
Certificate of Authority
Document filed with the Secretary of State that officially authorizes a corporation formed in another jurisdiction to conduct business in the state where the Certificate was filed.
Certificate of Existence
Official document issued by the Secretary of State that confirms an entity is in good standing with the state, i.e., Franchise Taxes are current, a Registered Agent has been appointed, etc. To learn more about the Certificate of Existence, please, visit The HBS Blog.
Certificate of Formation
Document filed with the Secretary of State that officially creates an LLC in Delaware.
Certificate of Good Standing
Official document issued by the Secretary of State that confirms an entity is in good standing with the state, i.e., Franchise Taxes are current, a Registered Agent has been appointed, etc. Same as "Certificate of Existence."
Certificate of Incorporation
Document issued by the Secretary of State that officially creates a corporation in Delaware.
Specialized court in Delaware staffed by judges who are expert in business and commercial transactions. This court only handles business cases, and has already established a long line of precedents protecting the rights of business owners.
Same as “Certificate of Incorporation.” Sometimes referred to as Charter because that was the name used by the earlier legislatures when only an act of the legislature could incorporate a business.
A corporation whose shares cannot be easily transferred without the approval of the other shareholders; it is managed by shareholders and a Board of Directors. Normally used for small businesses and family-owned business, in conjunction with a Subchapter S election.
Common Law Trust
A trust created pursuant to and governed by English Common Law precedents. Normally, a grantor of assets into a common law trust cannot maintain control over those assets without those assets still being considered a part of the grantor’s estate and subject to attachment.
The standard class of stock that provides its holders with the right to, among other things, vote on important matters, elect directors, and collect dividends. Sometimes referred to as Primary Stock.
What someone pays to someone else in exchange for receiving something in return.
The act of joining two separate and distinct existing entities into one new entity. Normally authorized by resolution and achieved by executing an Agreement of Consolidation between the parties involved. A Certificate of Incorporation is required for the new entity.
A private agreement entered into by two or more parties, and supported by valid consideration, wherein the parties agree to adhere to certain terms and conditions for an established period of time, or indefinitely.
Money, services rendered or other consideration paid to an entity in exchange for ownership in that entity.
The act of switching from one entity type to another while still preserving the original entity’s date of formation.
The act of maintaining proper corporate records and Registered Agent services, making timely Franchise Tax payments, holding the entity as a separate and distinct being and not commingling personal assets with corporate assets.
Corporate Income Tax
A state tax on profits generated by corporations that conduct business in Delaware.
Endings to entity names that are required by the Secretary of State to enable the public to know it is dealing with a corporation. For example, Delaware corporation names must end with “Incorporated,” “Inc.,” “Corporation,” “Corp.,” “Limited” or “Ltd.”
Corporate Record Book (or Corporate Kit)
A book or kit that organizes all of the key documents of the corporation, such as the Certificate of Incorporation, the bylaws, the Stock Certificates, the Stock Transfer Ledger, the minutes and the Resolutions.
A shield of limited liability afforded to corporations and LLCs that maintain their corporate compliance. Creditors cannot proceed against owners’ personal assets.
A filing with the Secretary of State that corrects a clerical error in a previously filed document.
Court of Chancery
Same as “Chancery Court.”
Cumulative Preferred Stock
Preferred stock that provides the holders the privilege of receiving cumulative dividends, as well as current dividends, prior to any dividends being paid to common stock holders.
Since 1981, Harvard Business Services, Inc. has helped form 136,275 Delaware corporations and LLCs for people all over the world.
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